The UK Government and Water Privatisation
Presentation by Peter Hardstaff, WDM for ASEM Conference, 6 - 9 Sept 2004

WDM is a UK-based organisation with some 13,000 supporters campaigning to change UK, European and International policies to tackle the root causes of poverty.

As part of our campaign on the General Agreement on Trade in Services (GATS), and as part of our campaign to stop the World Bank and IMF imposing economic policies on developing countries, we have become involved in working with groups campaigning against water privatisation.

More recently, we have been looking more closely at the role of the UK government in pushing water privatisation around the globe.

My role today is not to go into detail on the problems with privatisation or to talk about the way the World Bank and IMF are pushing this policy. My role is to explain how the UK government is involved in pushing privatisation around the world.

I will focus on the UK –both because there is much to say and because this is what WDM is most familiar with – but I’m happy to talk a bit about the EU in the questions and answer session.

So first, a few words about the UK agenda. What is it, and where did it come from?

Perhaps the most surprising, and difficult issue for development campaigners in the UK over the past eight years has been the recognition that a Labour government - supposedly left wing in its political outlook – is such a staunch supporter of deregulation, free markets and privatisation.

For example, our former international development minister, Clare Short, was seen by the public as being on the left of the labour party. Yet, in 2002, while still development minister she said, and I quote, “Privatisation is the only way to get the investment that poor countries need in things like banking, tourism, telecommunications and services such as water, under good regulatory arrangements.”

So, apart from a small number of Members of Parliament, our Labour government seems to have more or less adopted wholesale a neo-liberal economic agenda.

It is hard to say exactly when and how this happened. In one sense, I would prefer it if our government were simply pandering to corporate interests and giving in to corporate lobbying. This at least would be something we could identify and perhaps more easily counter.

Unfortunately, while companies certainly do exert significant influence on the government, I also suspect that many influential figures in the labour party actually believe their own rhetoric.

In reality then, I expect the reason for the UK’s adherence to free market orthodoxy is a mixture of both ideology and corporate influence with the two becoming increasingly difficult to separate. The practical result is that UK international development policy is often about benefits for business rather than benefits for the poor.

In the UK, the Department responsible for disbursing aid, conducting research on development, and being a champion for development issues within government is the Department for International Development – D.F.I.D. or ‘difid’ as we call it.

DFID – as well as our Chancellor of the Exchequer Gordon Brown – like to portray the UK as one of the ‘good guys’ – a friend of developing countries. They trumpet initiatives on debt relief, on aid and their support for reforming the EU’s Common Agricultural Policy, as evidence that the UK is at the forefront of pushing development friendly policies.

Unfortunately, this public face masks the reality that the UK is all too often part of the problem, rather than the solution.

DFID has become a key player in pushing water privatisation across the world. Although UK aid is officially not tied to contracts for UK companies, DFID is pushing an agenda that, at the very least, benefits the private sector, and at most ends up benefiting UK companies directly.

Another part of Government – known as UK Trade and Investment – has summed up the UK’s approach in the following quote:

The UK has a great deal of practical knowledge and expertise to offer with regard to the expansion, maintenance and management of complex infrastructure systems and in particular with regard to private sector participation in the same. Apart from world-class utilities, contractors, equipment suppliers and consultants there are also leading firms of financiers and lawyers to back them up. The long-term future of all of these companies is crucially dependent upon their expanding their worldwide operations and the UK is now one of the largest investors in overseas infrastructure, either through the development of new projects or through the management of existing, previously state owned, assets.

UK Trade & Investment is the official export promotion arm of the UK government, originally established by the Labour government in 1999.

Essentially, the UK Government is exporting privatisation. In the 1980s, an industry was established around privatisation in the UK, and now those companies – the consultancies, the contractors and the utilities – want new markets.

The problem we face is in pinning down exactly how the UK government does this. I will attempt to give you an outline of three ways in which DFID is pursuing privatisation, and I will focus on water.

The first, is through tying UK aid to implementation of World Bank and IMF policy conditions.

Direct country-based UK aid for new water construction projects is in decline. Funds are increasingly channelled through budget support. Fifteen per cent of UK aid money is now channelled directly into developing country government budgets.

On the one hand, this theoretically gives governments greater flexibility in how aid money is spent. On the other, the ‘catch’ is that these countries must be ‘on track’ with their World Bank and IMF programmes in order to receive the money.

The pattern emerging is one where no donor money is released until there has been a satisfactory current assessment of a country’s policies by the World Bank and IMF.

DFID aid is also tied to the implementation of Poverty Reduction Strategy Papers (PRSPs) which are, at the very least heavily influenced by the World Bank and IMF and at most practically written by these institutions.

DFID has explicitly linked its dispersal of funds for water and sanitation to the implementation of PRSPs in Uganda, Vietnam, India, Ghana and Tanzania. Yet PRSPs often include policies decided by the Bank and Fund, not by the people and parliaments of these countries.

The second way DFID pushes privatisation is through what is called technical assistance.

Technical assistance is a term used to describe funding directed at institutional reform and policy change achieved through the provision of personnel, training or research.

In its recent water strategy, DFID makes clear its intention to become a key funder and promoter of what it calls ‘strategic policy level research and advocacy’.

This approach ties in perfectly with the UK Government’s explicit aim of helping UK companies become involved in privatisation overseas. The UK Government calls it ‘aid funded business’.

The practical result of this ‘aid funded business’ approach is that millions of pounds are given to consultants to ‘advise’ developing country governments on water sector reform; in other words, privatisation.

In the water sector, in 2003 DFID spent £6.8million on ‘sanitation’ – mainly comprising technical assistance in Africa, and it spent £9.8million on ‘Water Resource Management’ – mainly technical assistance in Asia.

More broadly, in 2003, DFID spent £36 million on technical assistance under the headings of ‘Private Sector Development’ and ‘Public Private Partnerships’ – mainly in Africa and Asia.

Under these various different headings, DFID awarded 35 million pounds of contracts to companies for what it calls “public sector management and macro-economic reform”.

This includes millions of pounds worth of contracts for a consultancy company called the Adam Smith Institute to provide ‘technical assistance’ on water privatisation in Ghana and Tanzania.

And millions in funding for Halcrow – another consultancy company – for water sector restructuring work in Mozambique, Kenya and South Africa.

This is an area of the water privatisation debate that has received little attention. Most of the focus has been on big water utility companies – such as Vivendi, Suez, Thames Water, International Water and Bechtel.

But we believe the role of consultancy companies such as Price Waterhouse Coopers, KPMG, Arthur Andersen, Deloitte and Touche and the Adam Smith Institute is central to the way privatisation is being pushed globally and perhaps needs more attention from activists.

The third way DFID pursues privatisation is through what are called ‘multi-donor financing mechanisms’

In March 2004, DFID released a ‘Water Action Plan’ stating that, and I quote, “We are developing and implementing a range of multi-donor programmes to encourage private sector investment in basic infrastructure services.”

These financing mechanisms also fit perfectly with the UK’s ‘aid funded business’ agenda as they are essentially a way to give taxpayers money to multinationals in order to entice them to set up in developing countries.

DFID is taking the lead on, and wields considerable influence over, at least four major multi-donor finance mechanisms that are involved in providing capital for privatisation.

First, is the Emerging Africa Infrastructure Fund (EAIF), launched by DFID in January 2002. It involves four major donors, Sweden, Germany, Netherlands and the UK and is aimed at mobilising up to $450 million for private investment in basic services infrastructure projects in Africa.

The fund is managed by a US-based fund manager and gives money only to the private sector and does not work with African governments. DFID is explicit that the fund is open only to private companies. EAIF will not provide any financing for public sector investment.

Second, is the Private Infrastructure Donors Group (PIDG). This is a fund managed by the World Bank, but initiated by DFID in 2002. It aims to bring together, and I quote, ‘a group of like-minded donors seeking to increase private sector investment in the infrastructure of developing countries’.

By the end of 2003, its backers included UK, Sweden, Switzerland and the Netherlands and the group seems to be working with a lot of recognised global consulting companies.

Third, is Business Partners for Development (BPD). BPD has a specific water programme called: ‘Building Partnerships for Development in Water and Sanitation’ that is focused on increasing business participation in the sector. In this water sector initiative, DFID is the only government development agency partner, amongst private firms and NGOs.

We believe DFID provides significant funding for this programme which is currently focused on 7 countries, including four of the biggest urban water privatisations in the world - La Paz in Bolivia, Cartegena in Colombia, Buenos Aires in Argentina, and Jakarta in Indonesia.

The fourth multi donor mechanism is the Private Public Infrastructure Advisory Facility (PPIAF). This is a joint initiative of the governments of Japan and the UK and was established in 1999. From what we can gather, much of the financing is going to consultancy companies and the objective is, and I quote, to ‘tackle the enabling environment for Public Private Partnerships in infrastructure.’

So, just to re-cap, the UK Government, as a result of corporate influence and ideology - is pursuing a water privatisation agenda overseas. It is doing this through its support of World Bank and IMF policy conditions, through its major technical assistance budget and through a range of multi-donor financing mechanisms all aimed at increasing the role of the private sector in developing countries.

I should also just briefly mention that, where water privatisation has taken place – whether pushed by the IMF and World Bank or by bilateral donors like the UK - the European Union is seeking to make this irreversible by including ‘water supply’ as a sub-sector in the General Agreement on Trade in Services (the GATS) and seeking binding market access commitments for multinational companies in developing countries.

So before finishing, a few brief words on what WDM is doing on these issues over the coming year:

We are continuing work on challenging World Bank and IMF economic policy conditions attached to loans and debt relief. In particular, we are highlighting the role the UK plays in the Bank and Fund and seeking to pressurise our government into supporting greater democratic scrutiny of loan and debt deals in the countries affected.

Through the Trade Justice Movement – a coalition of NGOs in the UK that have joined forces to campaign on trade issues – we are seeking to put pressure on the UK Government, and the EU to abandon the proposal to include water in the GATS.

And we are developing work on exposing DFID’s role in pushing water privatisation around the world and we are seeking to collaborate with campaigners in countries where DFID is a key player in this process.

So, I hope that I have been able to give you a brief outline of how deeply involved the UK government has become in pushing water privatisation globally, and I hope WDM will get a chance to work with you in the future and that we can join together to challenge all those who are complicit in this process.